False public disclosures surged on the tech-heavy KOSDAQ stock market this year, the Korea Exchange said on Wednesday.

As unfair and misleading disclosures by the listed firms tend to increase volatility and distort stock prices, the KRX had toughened its crackdown on such irregularities last year, resulting in a decrease of incidences. But the practice seems to be returning.

In the first half of this year, the exchange spotted 57 cases of irregular disclosures by 50 KOSDAQ-listed companies. The number of cases had steadily risen from 97 in 2007 to 125 in 2009, before declining to 70 last year.

If the current upward trend continues in the second half, the total figure of unfair disclosures is expected to surpass the 2010 level by a wide margin.

To minimize irregular disclosures, the KRX said it would introduce a system on Aug. 1, in which investors can report unfair and misleading public announcements by the KOSDAQ-listed firms to the authorities in return for rewards.

The move came as the KRX relies mostly on voluntary admission from the listed firms concerning the problems with their disclosures while official reviews usually come too late. The newly envisioned system will allow investors themselves to keep a tab on public disclosure practices.

Details, including prize money for reporting false disclosures, are still being worked out.

“Once the reward system is in place, more irregular cases will be exposed initially, but in the long term will force the listed firms to stick to the rules when putting out market-sensitive announcements,” a KRX official said.

The KRX said 30 companies have been given penalty scores and two firms were classified as issues for administration due to irregular disclosures in the first half of this year.

By Yang Sung-jin (insight@heraldcorp.com)